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This paper develops a model for a particular type of grand corruption often encountered in developing countries, namely, the sale of government positions by autocratic rulers. A two-stage game is considered, where the autocrat moves first to maximize his revenue from the sale of positions in the cabinet by choosing a price that must be paid by interested politicians. The latter become bureaucrats who maximize their utility from bribe revenues for the given price set by the president. Backward induction yields subgame-perfect equilibrium levels of corruption of the president and bureaucrats. A key insight from this analysis is that conventional tools of fighting corruption become ineffective when corruption at the very top is ignored. The model is distinctive in its treatment of individual moral costs of being corrupt and in its consideration of a revolutionary constraint on the autocrat's choices.

This article focuses on the barriers faced by firms due to non-compliance with European law. Although there is an extensive literature on non-compliance in the European Union, there has not been any systematic assessment of the barriers faced by firms in trying to market their products across different national boundaries. We draw on a comprehensive database of over 2000 cases of business complaints about regulatory and administrative barriers encountered in the single market. Our empirical findings survey the range and type of barriers that affect different industrial sectors, the variation in compliance with European law among member states, and the different solutions used to address business complaints about the functioning of the single market. The data shows that firms continue to face considerable challenges in operating the single market, and that there are still trade and growth dividends to be harnessed from addressing the remaining barriers to trade.

Whereas debate about sovereign wealth funds (SWFs) often focuses upon the global significance of their investment strategies, these institutions are also emblematic of the new global order of financial capitalism. SWFs are a mechanism for states to advance their interests through global financial markets and are a switch point for the translation of resource assets into financial assets in global markets. Yet, realising the promise of SWFs is not easy. The form and functions of these institutions are typically conceived in Western terms, so the necessary infrastructure for their effective performance may not exist in non-Western jurisdictions. Nonetheless, these funds have grown increasingly popular throughout the world. As such, this paper examines the process of SWF adoption in non-Western jurisdictions, and, in particular, SWFs' recent rise in popularity amongst the Gulf States. These countries are particularly interesting as they face a variety of challenges due to institutional contradictions between the norms of Western finance and the inherited traditions of the Gulf. While Gulf SWFs may be limited in their effectiveness, these funds still serve as an important symbol for the region, representing a formal gesture towards ‘modernity’ in the context of nation-states' inherited traditions.

This special issue of Business and Politics examines how multinational corporations (MNCs) respond to the twin pressures of globalization and localization when implementing corporate responsibility (CR) policies. While MNCs are often viewed as agents of global economic integration, MNCs are impacted by globalization pressures, often in ways they cannot adequately control. As economies globalize, so do politics and stakeholder expectations that MNCs must negotiate as they manage their global operations. Working from the premise that CR strategies need to cohere with product and factor market strategies, the papers in this special issue make two contributions. First, they suggest that CR is an integral component of MNCs’ market and non-market strategies. Second, in addition to multi-domestic CR strategies, MNCs should consider international and global CR strategies as well.

Global Framework Agreements (GFAs) are still a marginal topic in political and academic discourses over global governance and corporate responsibility. In functional terms, GFAs are a commitment to include global labor standards with respect to human resource management as part of this broader turn to CR. But to what extent are these intentions and goals actually realized? Are corporations able and willing to implement GFAs in a joint effort together with the unions across a vastly diverse range of institutional settings and national arrangements? And do GFAs have an influence on core elements of a company's business policy decisions? Drawing on the insights from an interdisciplinary and multinational project, this paper uses four case studies to explore the conditions and variations in GFA implementation in the USA. Although we observe, as have others before us, that key matters of business strategy such as investments, acquisitions, restructuring, or relocation are more centralized than corporate policies on labor relations, we provide some evidence that the implementation of GFAs can be moved forward by a confluence of external actor involvement and of corporate strategies motivated by a desire to streamline HRM practices (that include the goals covered by GFAs in their core business practices). This finding of the influence of external actor voice in implementation processes may also have broader explanatory power with respect to CR initiatives in general. And in theoretical terms it allows us to explore the interplay between macro structural explanations like the Varieties of Capitalism approach, and the strategic “micro-political” explanations. Our study, in fact, suggests a strong need to combine these in a more systematic fashion.

A large literature examines corporate political activity in the United States, but much less is known about firms’ lobbying activities and policy influence in developing countries. I argue that firm-level heterogeneity helps explain firms’ political behavior, while political institutions shape policymakers’ incentives to respond to business interests. The empirical analysis relies on the World Bank's Enterprise Survey, which covers over 20,000 firms operating in 42 developing and transition countries, to examine the determinants of lobbying and perceived policy influence. Multilevel estimates support the hypotheses that lobbying and influence increase with the firm's size and market power. Additionally, I find that firms report greater policy influence in democracies than in non-democracies.

Formal institutions such as business chambers have been assumed to be a key indicator of the health of state-business relations (SBR). Yet in Africa these organizations have seldom risen to the level of access and influence enjoyed by some of their counterparts elsewhere in the developing world. A number of recent studies of SBR in Africa continue to overstate the importance of business associations (BAs). Yet despite the widespread marginality of BAs in Africa, the receptiveness of African states to leading firms and business interests has increased markedly. While this poses certain risks of increased corruption, collusion and monopoly, the institutional and political environment for doing business has also improved, thereby fostering new opportunities for further business-related growth and business sector development among bona fide firms. Drawing on evidence from Zambia and elsewhere, this paper finds that the benefits provided to individual firms who enjoy state access can, paradoxically, contribute to an improved environment for other private sector actors whose interests are directly represented only in moribund formal associations. Even without strong BAs, when aided by the state, individual firms, and/or international actors, Africa's improved business environment has a salutary impact on growth.

Due to EU legislation, public procurement through competitive tendering has been applied in most European countries. One purpose of such procurement is to lower the costs of the procured service and another is for the political level to gain better control over what it is purchasing. However, monitoring problems exist when conducting public procurements; recent studies indicate that actions related to public servant corruption are most common in public procurement processes. Citing cases from Sweden, this article argue that, in the case of public procurement, private firms have assumed a monitoring role towards the public sector similar to that of whistleblowers, and that the public system in fact depends on private firms to detect procurement bypasses committed by civil servants. This article provides an understanding of this monitoring role and discusses its theoretical and practical implications for the public system. I conclude that upholding the public system is not the primary objective of the private whistleblower but a positive side effect. The monitoring role is analyzed in the framework of principal–agent theory and should be seen as complementary to the existing monitoring functions available to public principals.

Multinational companies (MNCs) shape their nonmarket strategies in response to the social and political context in which they operate. Empirical evidence shows that these strategies frequently fall into one of two categories: they either consist of a disparate portfolio of disconnected country-level social and political programs or are composed of standardized corporate policies that are applied uniformly across geographies. The former type of strategy implies that MNC managers view their firm's context as extremely fragmented across country borders, while the latter reflects the perception of a highly homogeneous international environment. Yet, most industries and firms operate in a semi-globalized socio-political context. In this paper we propose that producing strategies that truly fit with the specific characteristics of an MNC's nonmarket context requires that this context be defined along four dimensions: stakeholders, issues, networks, and geography. Conceptualizing an MNC socio-political context in this way broadens dramatically the strategic choices of MNC managers. We illustrate the use of our model by describing four socio-political contexts frequently encountered by MNCs, and showing how alternative nonmarket strategies seem a better option than the standard “one-size-fits-all” or “every-country-a-different-strategy” approaches of today.

This paper analyses the application of competition policy regulation and its effect on market conduct and performance through the case study of communication satellite broadcasting in Japan. Focusing on structural regulations such as vertical separation and conduct regulations such as open access, this paper questions whether regulations have effectively led to contestable markets by examining the shareholding relationships of major player SKY PerfecTV. Findings presented here suggest that regulation designed in principle to achieve performance-oriented goals of contestability and diversity actually impaired the functioning of the market and the ability of industry players to obtain an adequate return on investment.

The article seeks to explain how policies affect business groups’ decisions to stay or leave a sector of activity in a liberalized economy. The article utilizes a comparative historical approach to explain how business groups in six Central American countries decided to enter, remain in or leave the banking sector. Using case studies of the main banks belonging to business groups in the region, the article seeks to identify how particular sequences of policies lead to the formation of two major strategies. A portfolio one, characterized by a short-term interest in the banking sector; and an organic one, in which the banking sector plays a more important role for the whole group. Looking at the impact of three policies (nationalization, privatization and liberalization), I show that previous nationalization had contributed to a dominant portfolio strategy in Costa Rica and El Salvador. The absence of nationalization favored the dominance of an organic strategy in Guatemala and Honduras. Additionally, the cases of Nicaragua and Panama are analyzed as examples of how other events, such as early internationalization and early liberalization, can favor a more mixed scenario.

We examine corporate donations to political candidates for federal offices in the United States from 1991 to 2004. Firms that donate have operating characteristics consistent with the existence of a free cash flow problem, and donations are negatively correlated with returns. A $10,000 increase in donations is associated with a reduction in annual excess returns of 7.4 basis points. Worse corporate governance is associated with larger donations. Even after controlling for corporate governance, donations are associated with lower returns. Donating firms engage in more acquisitions and their acquisitions have significantly lower cumulative abnormal announcement returns than non-donating firms. We find virtually no support for the hypothesis that donations represent an investment in political capital. Instead, political donations are symptomatic of agency problems within firms. Our results are particularly useful in light of the Citizens United ruling, which is likely to greatly increase the use of corporate funds for political donations.

There is a continuing need for an analytical approach to institutional change, especially as applied to incremental, agent-driven change. Important institutional change can be incremental and not necessarily linked to immediate crisis. Institutional adjustments initiated by actors in the course of meeting specific economic and political goals can unblock systemic bottlenecks leading to improved economic performance. Aggregate incremental change could also lead to system evolution that deviates significantly from the original system model. This paper presents an approach that engages agent impact on the institutional system, and the political or social motives for action; the two-tiered approach moves away from the categories described in Varieties of Capitalism, one of the more influential approaches to analyzing institutional impact in an economy. Instead of static national categories, the approach presented in this paper differentiates between defining institutions and instrumental institutions, the differences in ease and speed of change which characterize each institutional tier, and how the system's evolution is impacted by the combined effect of changes in each tier. Differentiating between institutions in this manner, the paper provides an approach that is more flexible in explaining the interactions between agents and institutions, and the changes which may result.

Among the factors providing incentives to monitor the behaviour of input suppliers are the regulatory requirements to which downstream firms are subject. We develop a formal economic model to examine the relationship between the strictness of the regulatory environment and downstream firms' incentives to act as inspectors of their sub-contractors. We consider the interaction between a downstream producer and an upstream input supplier. The downstream chooses the probability with which to monitor the upstream's compliance and the upstream chooses a compliance level which determines compliance of the end product with quality or environmental regulation. We find that the strictness of regulation affects the downstream's monitoring strategy in combination with the level of quality or environmental standards. If the standards are sufficiently low then the strictness of regulation increases incentives to monitor the upstream. Contrary, if the standards are sufficiently high then the pressure on the downstream to monitor the upstream is relaxed and the strictness of regulation decreases incentives to monitor. We argue that the strictness of regulation should not be treated in isolation as a factor determining the choice of downstream firms to monitor their input suppliers.

Scholars have shown that corporate responsibility (CR) initiatives can create intangible assets that help MNCs reduce their liability of foreignness and even gain competitive advantage over local rivals. But scholars have not addressed the ability of MNCs to transfer CR initiatives to subsidiaries. This study builds theory about the conditions that influence success and failure in the transfer of CR practices from headquarters to overseas subsidiaries. We analyze CR transfers from the headquarters of an Indian multinational to its subsidiaries in China and the U.K. Our findings suggest that CR transfer differs in substantial ways from operational practice transfer. In particular, the ambiguity of the CR initiative, the social competency of the business unit transferring the CR initiative, and the active involvement of local stakeholders play significant roles in CR transfer success.

The economic and political outcomes of market globalization continue to be complex. As international corporations engage developing markets, they increasingly find consumers who lack market sophistication, meaningful purchasing options and economic leverage. Such conditions are ripe for the exploitation of these market segments but also can be mitigated by enlightened managers willing to thoughtfully consider their ethical and professional obligations to vulnerable consumers. This paper builds on a normative ethical framework, labeled the integrative justice model (IJM) for impoverished markets that was introduced in the marketing and public policy literature. Specifically, the paper will extend the normative ethics of the IJM by proposing logically reasoned decision principles for managers, particularly in MNC subsidiaries, that might better shape ethical business strategy when targeting impoverished segments. Additionally, numerous case examples are given to illustrate how a number of these decision principles are already being applied by companies around the world. Such an approach can serve as a counterweight to the difficulty of crafting global regulations for market development.

Since the 1970s many firms expanded their operations across national borders and were restructured to fit the changing economic conditions during these times of economic globalization. Using a sociological approach to transnational firms, in this article the authors research the consequences of these developments for the responsibility of two transnational firms towards their employees in the Netherlands. These firms experienced a shift in their dual embeddedness in national and transnational economic fields, with the latter gaining importance. In response, they adjusted their corporate policies and structure to fit the competitive conditions of these fields, causing a centralization of their corporate labor policy on the transnational level, the polarization of this policy and the instrumentalization of labor and labor policy. This also meant that their responsibility for their employees was restructured and reduced.

Codes of ethics contain a set of rules of conduct and corporate principles concerning the responsibility of a company to its stakeholders and shareholders. These codes help to guide corporate and employee behavior, and constitute verifiable elements of social responsibility. This study examines the Most Admired Companies of the World, ranked by Fortune magazine in 2009 to find out, first, whether their codes of ethics exhibit greater emphasis on social responsibility and strong implementation processes, and second, whether they could be considered codes of the third generation as elaborated by Stohl et al. in their article in the Journal of Business Ethics. Our results indicate that the codes of ethics of the 2009 Most Admired Companies of the World resemble “codes of conduct” rather than strictly codes of ethics or “codes of corporate social responsibility”. These codes continue to be governed by traditional norms related to immediate economic success, normative compliance, internal management and the pressing effects of their sector. This study thus provides empirical support for the idea that the philosophy of corporate social responsibility (CSR) is scarcely present in the codes of the most reputable companies.

Among the triggers of the Egyptian Revolution are the sentiments of resentment against the convoluted alliances between private businesses and policymakers that deprived the masses of their fair share of the high GDP growth. But does this indictment extend to the Egyptian banking sector? Based on a field survey and a dataset of 3218 business loans made by 33 banks during 1999–2010, this research differentiates between growth catalysts and crony coalitions within the Egyptian banking sector. The results of the Generalized Estimating Equations reveal that preferential lending to politically-connected businesses has a negative impact on employment and income distribution. Loans to small and medium enterprises and public firms help enhance income distribution and job generation, albeit that the soft-budget constraint on loans to public firms deters growth. The paper presents some policy recommendations that could help exorcise patrimonialism and clientelism and enhance growth alliances within the sector that controls most of the credit flow in the Egyptian economy. The study is not only of grave importance to the Egyptian nation whose members are actively engaged in refurbishing its institutional framework, but is of equal significance to other emerging economies that are keen to install equity, political stability and socioeconomic prosperity.

Corporate Responsibility (CR) is today an essential component of corporate global strategy. CR can bolster the institutional context for market expansion fill institutional voids or facilitate market entry as a component of non-market strategy. Yet, in fulfilling these functions, CR may need to be highly sensitive to local contexts. How can transnational firms organize CR so as to maximize efficiencies from globalization and to minimize the fragmentation of corporate organizational cultures? provide a framework for analyzing the way that corporations coordinate global and local functions. We build on this framework in a case study of Novo Nordisk and its approach to determining global and local CR policies and procedures with regard to its China and US subsidiaries. Our findings suggest that it is important for companies to define a common set of organizational norms. In addition, CR need to be sensitive to local institutional contexts, but learning from subsidiary experience is important and lends itself to standardization and replication of initiatives across market contexts.